Economic data

Peeking early

A continuing kerfuffle over releases of privately sourced data

DATA releases stir emotions as well as moving markets. Concerns have grown about trading firms getting early peeks of certain releases. The case causing the biggest fuss is a widely watched consumer-sentiment index distributed by Thomson Reuters under a contract with the University of Michigan.

Mark Rosenblum, a former Thomson salesman, claims he was fired after querying whether the release violated insider-trading laws because it went to high-speed traders, paying $6,000 a month for their feeds, two seconds before regular subscribers saw it. The firm says he was sacked for falsely claiming credit for sales. It is trying to get his wrongful-termination suit dismissed because he took his case to the FBI, not the Securities and Exchange Commission (SEC), and so does not qualify as a whistleblower.

The case has attracted the interest of New York’s attorney-general, Eric Schneiderman, who is investigating whether this and other cases “undermine fair play” in markets. In July Thomson suspended the high-speed feed.

In an affidavit seen by The Economist, Mr Rosenblum says a colleague warned him that “chasing down who is getting the numbers ahead of time” would affect profits, and that his line manager advised him to “stop being a hero”. He also claims that a colleague in India, who helped disseminate the data, suggested that a group of 17 banks, brokers and hedge funds—among them some of the biggest names in American finance—were getting the headline number up to one hour, not just seconds, before the 9:55am release time. Thomson Reuters says it believes Mr Rosenblum’s case to be “unsubstantiated and without merit”.

Legally, this is a grey area. To some it may seem unfair that deep-pocketed trading outfits can buy an early look at market-moving numbers. But there are no regulations governing selective disclosure of private data, unlike sensitive corporate information or government data. The SEC can act only if it suspects securities fraud (though Mr Schneiderman wields New York’s Martin Act, which has a lower burden of proof).

Meanwhile, traders will continue to pay for early looks, even though, as one regulatory source puts it: “Some feel it’s extortion. They could happily do without it and instead rely on the speed of their machines for an edge.” But that doesn’t help when others are getting the number whole seconds or minutes earlier.